The Baby Boomer Business Exit Bubble

By Marcus
Hedenberglast updated Monday,
April 13, 2015

Exit bubble

Roughly 76.4 million “baby
boomers” were born in the United States between 1946 and 1964. Many of
those boomers later went on to form businesses, and today, between four
and five million businesses are owned by people over 53 years old.
It's an astonishing number, but also a troubling
one, now that a reported 75 percent of owners don't have an exit plan.
Gary Ampulski, Managing Partner of Midwest Genesis (a Business Value
Enhancement and Transition Planning/Execution firm), delves inside the
“baby boomer exit bubble” that looms over seniors who may now want to
sell their businesses.
“If every owner in the over 53 crowd is depending on
selling their business to fund the next stage of their life (be it
retirement or something else), the amount of capital required to close
all those transactions is over $10 trillion dollars,” Mr. Ampulski
writes. “Where is the money going to come from to fund those
acquisitions?”
At the moment, there's about $535 billion in funds
available to acquire businesses, which falls drastically short of the
equity needed to satisfy all the sellers looking to sell their
businesses. In fact, many experts now believe that the fierce
competition for these retiring business owners will drive down prices.
Some contend that baby boomers should actually avoid
starting new business ventures altogether if they haven't already done
so, especially now that American households comprised of individuals in
their 50s and 60s have a much smaller net worth on average than similar
households in the 1980s, according to the Employee Benefit Research
Institute. Worse, the average American household only has approximately
$25,000 in savings and investments, excluding home and pension benefits.
Fortunately, not all hope is yet lost for baby
boomers looking to exit their businesses. Selling off ownership of
one's business to talented millennials who are fresh out of business
school may actually be a worthwhile alternative, especially for those
who lack any natural heir or wish to avoid a corporate buyout.
Tenise Homan, entrepreneur and co-founder of
ExitBubble.com, says that one of the first things business owners must
do is to think like a buyer. Better yet, business owners should think
like Millennial buyers and ask themselves how they can make their
business attractive to that younger buyer.
Among other things, Ms. Homan recommends to perform
due diligence about buyers before selecting them, as negotiating power
for price significantly wanes afterward. Moreover, owners should not
“be blinded by dollar signs” since the highest price offer is not
necessarily the best. It's also important to understand potential
buyers' assumptions about valuation and that one has to anticipate
price adjustments after the buyer has conducted his or her own due
diligence. Equally crucial is weighing the buyer's ability to close the
transaction and whether the net profits after transaction costs, taxes
and debts are enough to cover one's financial exit goals.
“Planning how and when you exit your business might
feel uncomfortable, but it is how business owners can maximize the
return on their investment of all of those years of hard work,” Ms.
Homan writes. “Business owners owe it to themselves and their families
to start planning now, regardless of when they expect to exit their
business.”
Above all, the key to selling off one's business is
patience and optimism. With Millennials under the age of 35 numbering
at roughly 80 million today, there's a potentially rich pool of
customers to tap into – customers who could very well become buyers
given the difficulty of finding jobs today in corporate America. The
answer for them may yet be to turn to entrepreneurship.